Australian miners hit hard by China’s Evergrande collapse

Falling iron ore prices, blamed in part on China’s growing problems, are starting to hit Australian miners hard.

Two Australian miners have suspended operations due to falling iron ore prices.

Iron ore recovered slightly yesterday, up 3 percent to US $ 118.25 (A $ 162.93) per tonne.

However, Australia’s most valuable export saw its price collapse by more than 60 percent from a record high in May when it hit nearly US $ 240 (AU $ 330.69) per tonne.

The Ridges mine in East Kimberley was placed in “care and maintenance” this week.

It is estimated that 200 jobs will be lost and the region will lose $ 3.5 million per month in revenue for local businesses, the ABC Reports.

Indus Mining said Australian mining that the project was deemed economically unviable due to both recent price drops and still high shipping costs.

Meanwhile, Mount Gibson Iron began a staged suspension of its Shine iron ore project.

Mount Gibson said in a statement: “In light of recent adverse movements in iron ore prices, product discounts and shipping freight rates, the company will implement a phased suspension of operations at the mine site. of Shine “.

Mt Gibson Iron also called for ASX trading to cease, citing “recent iron ore volatility”.

The GWR group has also suspended mining operations at its C4 iron ore mine.

The drop in prices is attributed to weaker demand from China, the world’s most voracious importer of iron ore.

This year, China has decided to reduce its steel production. Beijing has targeted the industry as part of its attempt to cut carbon emissions.

Beijing has also been accused of using iron ore as a “weapon” in the acrimonious trade dispute with Australia, which has led to high tariffs on Australian barley and wine exports. Australia’s lumber, lobster and coal industries have also been targeted.

But the biggest problem is the state of the Chinese economy.

Evergrande Group, China’s second-largest real estate developer, is on the brink of collapse.

Yesterday he failed to pay $ 180 million in interest and recently agreed to sell his stake in local bank Shengjing for nearly 10 billion yuan (AU $ 2.1 billion).

The company is weighed down by $ 300 billion (AU $ 413 billion) in debt and there are fears its collapse will further damage the iron ore trade.

There are also fears that Evergrande’s debt problems will spill over into China’s financial system and spill over globally.

Evergrande has missed two bond interest payments in the past two weeks.

The Chinese real estate market, pushed ever higher by Beijing’s massive stimulus measures, was financed by borrowed money.

In an attempt to control the bubble, Beijing introduced the guidelines of the “three red lines” in 2020.

This requires developers to submit detailed reports on their funding situation for assessment by regulators led by the People’s Bank of China, according to UBS.

The “three red lines” require developers to:

1. Have a liability / asset ratio (excluding anticipated receipts) of less than 70%;

2. Have a net debt ratio of less than 100%; and

3. Have a liquidity / short-term debt ratio greater than 1x.

These new rules have been blamed for bringing Evergrande to the brink and home sales have plummeted.

Homin Lee, strategist at Lombard Odier, described the Evergrande crisis as a “controlled demolition” – or a managed collapse.

It is not known whether Beijing will step in to bail out the besieged company.

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